So following up to decisions made yesterday. As stated in post 1, the portfolio and each individual asset is based on full size contracts. The plan was to trade micro/E-miny contracts to reduce the capital risk during live testing. The strategy runs on the full size contracts though, it just trades the micro/E-miny. The errors I made initially was expecting each micro/E-miny was somewhat equivalent scale vs full size. This was very wrong.

Financials - 1 NQ = 10 MNQ or 1:10 (same for ES and GC)
Energy - 1 CL = 2 QM or 1:2 (same for NG)
Grains - 1 C = 5 YC or 1:5 (same for W and S)

So when I made the assumption that I could divide the overall system drawdown by 10, I was very wrong. To get the equivalent of trading 1 micro/e-miny contract for the portfolio I need to scale up the Energy and Grain contracts to match. So if I were trading 1 MNQ, 1 QM and 1 YC, in order to replicate on full size, I would trade 1 NQ, 5 CL, and 2 C. big difference vs the original assumptions. Then I would divide the results by 10 to get the equivalent micro/E-miny conversion for drawdown/run-up, etc.

So here is a rundown of what that looks like

Original assumptions




Actual relationship to micro/e-miny, you can see the difference in drawdown here. Much larger risk than originally assumed.




CL or QM removed




CL and NG or QM and QN removed




You can see that my original assumptions of a max drawdown of ~$1800 was quite off when the scaling is accounted for. The new max drawdown is close to $4000 equivalent. This is a BIG difference. The plan is to trade the portfolio with CL and NQ removed due to the imbalances. I cannot add these without increasing the risk of the overall system and therefore increasing the capital.

Here is the short-term look at drawdown with CL and NG removed to show we are still in a decent normal drawdown to turn the system on.


Long explanation to say I royally messed up on my assumptions which justified the portfolio change. Live and learn

you have the micro cl contracts coming later this year and the points will be 1/10th of an actual cl so only need 2 ticks or cents to break even. which is great!

i really like ho wyou waited for an expected drawdown in demo or back test to start tading. i thought of that before but never really thought.. hmmm.. what if i run my algo in demo and when it is a big drawdown thats when i will actually trade and min eis intraday so that may work for me a lot actually. good posts

I am so happy that yours momentum algo is working good, I was starting to develop a similar approach, taking a momentum daily/weekly algo for stocks and trying to apply it to futures trying to not overfit but damn I cannot come up with anything good in backtest. Can you please explain the engine of your momentum algo? Is it something like high>highest(hig,var ) for the longs? Did you used look inside bar at one minute for backtesting?

If I may. Just because they are not equal does not mean you cannot balance them out in your portfolio.

You just need to use some measurement of volatility of each in relation to other.

You mentioned corn. And I know you said the NQ as well.

Ahhh those are brutally different beasts.

But... for instance if you take the average ATR of say 14 days of BOTH then multiply that by a dollar amount you will have a way to "equalize" the risk of both.

Clearly the NQ "moves" more than corn. Movement multipled by their respective tick sizes will give you your numbers.

So say the NQ's dollar ATR for the last 14 days is $5500 and CORN's is $880.

Ok. 5500/880 = 6.25. Rounded down you should traded 6 CORN (plus 2 micro corn?) for EVERY 1 NQ.

Of course it's not going to GUARANTEE anything BUT if your goal is diversification (the ONLY holy grail in trading) then that again is a good way to trade ANY markets together.

Plus with the addition of the micros it gets even better! You can't trade .5 of a contract? No but if your strategy strategy calls for .5 you can buy/sell 5 micros.

Maybe this is obvious and your system is totally different I don't know?

Also I love the idea of turning the system on at the worst drawdown. Jack Schwager talks about that in his hege fund book. Smart move!

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Thank you for the response. This is a good way to look at diversification. I haven't really looked too closely at the overall balance of the portfolio yet. I built the system based on 1 full size contract and since I do not want to allocate the capital to the system yet in order to trade that, I planned on trading 1 micro contract of each. The problem with that assumption was that not all micro's are created equal. So I may have blown up the system just by having 1 oversized micro in the portfolio and one market could break the system.

Instead of using the ATR I used the maximum drawdown of each individual market in the system as a baseline to say whether it was a good pair. Just because you have an ATR difference doesn't necessarily mean you have a risk difference. For instance, my max drawdown on NQ and CL may be $10k, but if I convert that to micro's my max drawdown on MNQ is $1k and QM is now $5k. That is not a good pair anymore. I would need to trade 5 MNQ to 1 QM to match my current definition of risk from my system.

There are probably 15 different ways to look at this but I knew at the time that I had made a miscalculation and could not trade it as originally planned. As I am able to scale up this will be something I will need to dig into.

The idea of turning the system on during a drawdown just kind of fell into my lap as I had been watching the system for a bit and realized I was undergoing a drawdown. I knew this would kind of be a make or break moment of the system so I took the leap and it worked out. Never know what the future is going to bring though so my fingers are still crossed that I made the right decision.